The Changing Demands For Single Stock CFD's

12 Nov 2021, 13:15

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Changes in the way we all have been living, working and shopping over the last two years have resulted in some fundamental shifts in trading demands from institutional clients. The growth and risk opportunities in the underlying market have evolved and as with many market participants, CMC Markets Connect has been responding to these changes. We spoke to Andrew Wood, Head of Institutional Sales at CMC Markets APAC to understand more about the dynamics when it comes single stock CFDs.

The most obvious way in which this has manifested itself is the increased demand from counterparties seeking access to single stocks. Although many institutions approach brokers saying they want to gain exposure here by trading physical equities, CMC explained that they frequently find these needs can also be met by using significantly more flexible CFDs. Not only does this offer the ability to access assets from across the globe from a single account, providing simplicity of reporting and also the ability to cross-margin, but the contract for difference also enables the vast majority of stocks to be shorted. Whilst this can – and has traditionally - been achieved with physical equities by using stock borrowing, this approach has become increasingly expensive and difficult for many to deliver, adding to the appeal of a CFD, especially once its flexibility is truly understood.

The ability for a CFD to act as a proxy for the physical stock works for money manager and hedge fund type clients in the vast majority of instances. 

However, for those brokers who ultimately provide services to individual clients, the fact that CMC is making a market themselves - rather than relying on direct market access - offers another lucrative benefit. That means they are able to facilitate fractional trading in shares, something that has become increasingly popular amidst a boom in self-directed investing. Small retail clients looking to build a diversified portfolio struggle to access high-value stocks without this functionality.

CMC Markets also continues to expand the range of equities on offer, ensuring that counterparties have a genuine one-stop solution to their hedging and liquidity needs, something which in turn enables them to build deeper, more supportive relationships with institutions as aggregate volumes are higher. CMC Markets current product schedule now offers in excess of 10,000 single stock equity CFDs from markets across the globe, helping meet those evolving client needs. The broker tells us that historically the bulk of interest here was around legacy blue chips or the FAANG (Facebook, Amazon, Apple, Netflix, Google) genre of stock, but the pandemic had a real impact in trading demand – and this is something that many believe will prevail for some time to come.

With that in mind, it’s worth remembering that those stocks which have surged in popularity during the pandemic cover a wide range of industries and are listed on markets globally. Whether it’s the so-called meme stocks propelled by social media, those which have fared well with working from home – such as Peloton or Zoom – or even the bio-techs who have been innovating rapidly as they attempt to beat COVID, again the cross-market flexibility of using a CFD to gain exposure here has served to underline the versatility of the product.

By all accounts, the smart money is either already using CFDs or is taking a second look. Their inherent usefulness warrants it.

Rank

April 2019

April 2020

April 2021

1

Tesla Motors Inc

Tesla Motors Inc

Tesla Motors Inc

2

Apple

Apple

Apple

3

Facebook

Facebook

NIO Inc.

4

Amazon.com

Lloyds Banking

Coinbase Global Inc

5

Wirecard

Microsoft

Alibaba Group Holding - ADR

6

Boeing

Netflix Inc

Facebook

7

Netflix Inc

Amazon.com

Plug Power Inc

8

Lloyds Banking

Boeing

GameStop

9

NVIDIA

Wirecard

Lloyds Banking

10

Micron Technology Inc

Gilead Sciences

Advanced Micro Devices

Top 10 most popular single stock CFDs traded by CMC Markets Clients in April 2019, April 2020 and April 2021 by trade count.

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